Kaupthing Creditors, Madoff, A-Tec, Lehman Brothers: Bankruptcy

Creditors of failed Icelandic lender
Kaupthing Bank hf may get their claims settled in about a year
as the bank’s winding-up committee looks into the option of
swapping debt for equity.

“We could see issuing some kind of financial instruments
to the creditors in a year’s time,” said Olafur Gardarsson, the
head of Kaupthing’s winding-up committee, in an interview.
“Those who need the money can cash out and others that want to
see a greater return on their investment can choose to sit back
and wait.”

Kaupthing, which failed in October 2008 after it was unable
to access wholesale markets, faces total claims of about $56
billion, according to a creditors report published last month.
Investors who bought bonds in the bank can expect 26.25 cents
back on the euro, data provided by brokerage H.F. Verdbref hf
show. Iceland’s special prosecutor is still investigating former
Kaupthing executives for crimes including market manipulation
and forgery.

Creditors will have the freedom to choose how their claims
are settled as far as is possible, Gardarsson said. Each
creditor will learn the status of his claim on Dec. 3. Kaupthing
formally entered winding-up proceedings on Nov. 22, following a
ruling by the District Court of Reykjavik. The measure brought
to an end a moratorium on debt repayment, the bank said then.

After handling the claims, Kaupthing “has the opportunity
to enter a composition agreement,” Gardarsson said. “How each
claim was handled doesn’t really matter; whether they were
approved or rejected.”

Since Kaupthing’s failure, the bank’s resolution committee,
on behalf of creditors, agreed to take an 87 percent stake in
Arion Bank hf, a state-created unit comprising Kaupthing’s
domestic assets. The unit will be put toward covering claims,
though some bond holders say they never agreed to the
transaction.

Creditors can choose to run the bank as an asset management
company or “they could change this into a company in full
operation, which would then issue new loans and be a fully
functioning company,” Gardarsson said. “We have to find a
variety of exit points” for creditors with different demands,
he said.

UBS Calls Madoff Trustee’s Claims in $2 Billion Suit ‘Unfounded’

UBS AG, the Swiss wealth-management firm sued for fraud by
the trustee liquidating jailed con man Bernard L. Madoff’s
assets, denied complicity in the Ponzi scheme and said clients
knew with whom they were dealing.

Irving H. Picard, trustee for the liquidation of Bernard L.
Madoff Investment Securities LLC, is seeking at least $2 billion
in behalf of Madoff’s victims, according to the complaint, filed
Nov. 23 in U.S. Bankruptcy Court in New York.

The allegations “are completely unfounded and without
merit,” Kelly Smith, a spokeswoman for UBS, said in an e-mailed
statement. One fund sponsored by UBS “was created at the
explicit request of wealthy clients who requested a tailor-made
fund to enable them to continue investing their assets with
Madoff,” Smith said.

“UBS does not have responsibility to these shareholders
for the unfortunate results of the Madoff scandal,” she said.

Picard is seeking redemptions and fees from Zurich-based
UBS as well as damages and disgorgement.

“Madoff’s scheme could not have been accomplished unless
UBS had agreed not only to look the other way, but also to
pretend that they were truly ensuring the existence of assets
and trades when in fact they were not and never did,” David J. Sheehan, a partner at Baker & Hostetler LLP and counsel for
Picard, said in an e-mailed statement.

The complaint, alleges 23 counts of financial fraud and
misconduct against UBS “and related entities and individuals.”
The full complaint was filed under seal, followed by a redacted
version blanking out information deemed confidential by UBS,
Switzerland’s largest bank.

Picard suggests UBS tried to distance itself from the
convicted New Yorker. In a 2005 memo, one UBS-sponsored fund
said neither of two affiliates “should ever enter into a direct
contact with Bernard Madoff!!!” according to the complaint.

UBS “took this unusual step so as to avoid creating any
sort of record concerning any inquiry regarding Madoff,” the
complaint says.

Madoff insisted “that his name not appear in any official
offering document” relating to the feeder funds, Picard said.

“By complying with Madoff’s demand for secrecy,” the
defendants “ignored a red flag” and “assisted Madoff in
concealing the size and scope of his expanding fraud,”
according to Picard.

A-Tec’s AE&E Gets Court Approval to Reorganize Debt

A-Tec Industries AG’s AE&E construction unit received court
clearance to reorganize debt after it failed to sell the company
or unfreeze a 798 million-euro ($1.06 billion) credit line.

AE&E will be managed by an administrator after it filed for
reorganization proceedings at the Vienna Commercial Court on
Nov. 24, the company said in a statement. Under the
restructuring, which is part of the insolvency process,
creditors are being offered 20 percent of what they are owed,
AE&E said.

A-Tec requested a self-administered debt restructuring on
Oct. 20 that didn’t affect its four units, of which AE&E is the
biggest. AE&E, which builds power plants for utilities and steel
makers, had 1.8 billion euros of revenue and pretax profit of
73.7 million euros in 2009, according to A-Tec’s annual report.

Talks between AE&E and banks including BNP Paribas SA,
Commerzbank AG, Erste Group Bank AG and Raiffeisen Bank
International AG, over 97 million euros in bridge financing
collapsed on Nov. 15. The banks had suspended a 798 million-euro
credit line in mid-October.

AE&E had been trying to sell itself and potential buyers
included Austria’s Andritz AG, Mass Financial Corp. of Hong Kong
and Korea’s Doosan Heavy Industries and Construction Co., A-Tec
said in a separate statement.

A-Tec will adapt its restructuring plan to account for
AE&E’s filing, A-Tec said. Its Chief Executive Officer and
majority shareholder Mirko Kovats is offering A-Tec creditors a
25.1 percent stake in the company, the company said.

Nortel lawyer William Trower said at a hearing in London on
Nov. 24 that the pension regulator doesn’t have the power to
issue so called financial-support directions against companies
that are in administration or liquidation. The regulator in
September told Lehman’s unit to cover a deficit of 148 million
pounds and in July sought 2.1 million pounds from Nortel to
address the underfunding of its plan.

“If Parliament had intended an FSD to be an administration
expense, Parliament would also have required the pensions
regulator to take into account the consequences of the FSD on
the administration,” said Trower, who said he was speaking on
behalf of both Nortel and Lehman.

Lehman Brothers filed the largest bankruptcy in U.S.
history in September 2008, and the U.K. unit is being liquidated
in London. Nortel and affiliates filed for bankruptcy in the
U.S. and Canada in January 2009 while its U.K. operations were
placed in administration.